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RBI gets tough; says, if a company is unable to repay then that could lead to other group units and management being termed ‘wilful defaulters’

RBI in order to put intense pressure on businessmen, whose companies default in future, has intensified wilful defaulter rules. Now if a company is unable to repay then that could lead to other group units and management being termed ‘wilful defaulters’.

RBI held: “In cases where guarantees furnished by group companies on behalf of the wilfully defaulting units are not honoured when invoked by the banks, such group companies should also be reckoned as wilful defaulters.”

Thus, this cross default condition would apply if the offending borrower has raised up funds on the strong point of the balance sheet of its other group companies. Banks have also been asked to recover from personal guarantees offered by promoters even without draining other ways. The new norms have comes as a result of cases like Kingfisher Airlines where regardless of having a promoter guarantee and the existence of cash-rich companies in the group, lenders are realizing it as a challenge to raise funds.

RBI held that “It is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees.”

The modified guidelines nevertheless will not be of much benefit to banks in recovering from present borrowers like Kingfisher Airlines as they apply only prospectively and not to cases where guarantees were taken prior to this circular.  Around 5% of the loans in the Indian Banking system are in default whereas another 5% are under stress and have been offered some flexibility in repayment under a restructuring programme. Clarifying on its earlier norms the RBI had said the defaulting ‘unit’ appearing therein would include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not.

The new norms have come soon after the RBI governor Raghuram Rajan recently held that the wilful defaulter tag is a powerful weapon in the hands of creditors.

See: “Willful defaulter tag is a powerful weapon in hands of banks for resolving bad loans”: RBI Governor

RBI sets upper age limit for private bank CEOs at 70

The RBI brought relief for investors in HDFC Bank and IndusInd Bank, who have been anxious about the destiny of their celebrated chiefs who have provided massive returns in the past few years. Full-time directors of Pvt. banks can now continue up to the age of 70, in line with the Companies Act 2013. The bank boards will, nevertheless, hold the right to set a lower retirement age for officials.

RBI has been decided that the upper age limit for MD & CEO and other WTDs (Whole-Time Directors) of banks in the private sector should be 70 years, i.e.- beyond which no person should remain in the post. Within the overall limit of 70 years, individual bank’s boards are free to fix a lower retirement age for the WTDs, counting the MD & CEO, as an internal policy.

This view received further credence after the P J Nayak committee proposed a maximum age of 65 for bank CEOs. The committee, to review governance of boards of banks, had made the suggestion in its report to RBI this May.

Whilst RBI can take decision on what can be done at private banks as they are governed by the Companies Act, the Parliament has to amend the Bank Nationalisation Act to permit parallel provisions for state-run banks.

  • This is the first time RBI is prescribing retirement age for Pvt. bank CEOs.
  • The RBI Move aligns retirement with the Companies Act 2013
  • Minimum age to become Manager is 21 years.
  • Maximum age for CEOs, whole-time directors is 70.
  • Age of Top Bank CEOs: Aditya Puri (MD & CEO HDFC Bank: 64 Years), Romesh Sobati (MD & CEO IndusInd Bank: 65 Years), Chanda Kochar (MD & CEO ICICI Bank: 52 Years).

“Favouritism” in govt judgments down; India betters its global rank

India’s global ranking in favouritism shown by government officials to powerful corporates has bettered sharply from 94th in the last year to 49th place this year. The Rank nevertheless, still remains far below other key economies. As per a yearly study by the World Economic Forum (WEF), India’s ranking has also bettered notably in terms of public trust in politicians.

Qatar ranked 1st and is followed by New Zealand, Singapore, Finland, UAE, the Netherlands, Japan, Norway, Sweden and Switzerland in top 10. 

The study says, moreover, India has bettered its position with respect to diversion of public funds and uneven payments and bribery at government institutions. In the BRICS block, India’s position is superior than that of Russia (87th), South Africa (104th) and Brazil (108th). But, it rests far below that of China (22nd).

BSNL and MTNL to be merged by July 2015

In its presentation to Prime Minister Narendra Modi, the Department of Telecommunications(DoT), Ministry of Communications and Information Technology, has set a cutoff date: July 31, 2015, for closing the much debated merger of stressed state-run telecom companies, BSNL (Bharat Sanchar Nigam Ltd) and MTNL (Mahanagar Telephone Nigam Ltd).

MTNL runs telecom services in Delhi and Mumbai while BSNL offers telecom coverage in the rest of India.

Bharat Sanchar Nigam Limited (BSNL) incorporated on September 15, 2000, is an Indian state-owned telecommunications company headquartered in New Delhi, India. In India, BSNL is the largest supplier of Fixed Telephony and 4th largest Mobile Telephony supplier, and is also a supplier of broadband services. BSNL is India’s oldest and largest Communication Service Provider (CSP). Till January 2014, BSNL had a customer base of 117 million.

Mahanagar Telephone Nigam Limited (MTNL) set by Govt of India on April 1, 1986is a state-owned telecommunications service provider in the metro cities of Mumbai and New Delhi in India and in the island nation of Mauritius in Africa via its subsidiary Mahanagar Telephone Mauritius Limited (MTML). At present, The Government of India holds 100% stake in the MTNL.

Mahanagar Telephone Mauritius Limited (MTML) in Mauritius is a wholly owned subsidiary of MTNL. It proves mobile and international long distance services. MTML is the 2nd operator in Mauritius. In January 2004, MTML obtained necessary licenses to operate in Mauritius.

In current years BSNL’s and MTNL’s revenue and market share have jumped into substantial losses because of extreme competition in the Indian telecommunications sector. Government is attempting to revitalize the two financially stressed telcos, which continue to roll under heavy losses. MTNL posted a Rs 733.2 crore net loss in the Q1 2014, while BSNL suffered a Rs 7,085 crore loss in 2013-14.